Egypt unlocks USD 1.2 bn tranche from the IMF: The International Monetary Fund (IMF) has reached a staff level agreement with the Egyptian authorities on the fourth review of its USD 8 bn loan program, the Fund said in a statement overnight. The agreement grants Egypt access to USD 1.2 bn — the biggest tranche of the program so far — after the Fund’s executive board gives its stamp of approval.

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Right on time: We have been expecting the staff-level agreement to be announced before Christmas.

REFRESHER- The Fund completed its third review of the country’s loan program in late July and the USD 820 mn tranche landed in state coffers just days later. Egypt received its second USD 820 mn tranche in April shortly after the IMF’s executive board signed off on a USD 5 bn extension for the facility and completed its long-delayed first and second reviews.

A shift in priorities: “IMF staff and the Egyptian authorities agreed to recalibrate the fiscal consolidation path to create fiscal space for critical social programs benefiting vulnerable groups and the middle class, while ensuring debt sustainability,” Mission Chief for Egypt Ivanna Hollar said in the statement.

The revised fiscal commitments: The two sides agreed to revisit Egypt’s medium-term fiscal commitments — the country’s primary surplus is now expected to come in at 4% in the fiscal year 2025-2026, down from the 4.5% penciled in pre-revision, and then increase to 5% in the following fiscal year.

IN CONTEXT- Egypt achieved a primary surplus of 6.1% during the fiscal year 2023-2024 and has penciled in a primary surplus of 3.5% for the current fiscal year.

We knew this was coming: IMF boss Kristalina Georgieva had previously voiced openness to changing Egypt’s loan terms at the request of Egyptian officials in light of economic pressures the nation is enduring as the country carries out reforms as part of the loan agreement.

A focus on tax reforms over hikes: To boost tax revenues, authorities agreed to carry out a package of reforms that would increase the tax-to-GDP ratio by 2% over the next two years, “with a focus on the elimination of exemptions rather than an increase in tax rates.” This would make up part of a broader reform package aimed at reducing debt vulnerabilities while expanding allocations for health, education, and social protection.

Private sector push: Improving the business environment remains central to the reform agenda. Both sides emphasized the need to reduce the state’s footprint in the economy, level the playing field, rebuild investor confidence, and implement the public investment ceiling — the Finance Ministry introduced an EGP 1 tn public investment cap for all state entities to help create space for private players.

Privatization moves on the fast track? The two sides agreed that more needs to be done to accelerate the privatization program. “The authorities expressed commitment to redouble their efforts in this area,” the statement read.

We have big privatization hopes for 2025: Prime Minister Moustafa Madbouly recentlyannounced that the government is planning to offer up stakes in ten state-owned companies in 2025. The offerings will be via direct sales to strategic investors and/or through EGX listing.

And monetary tightening stays: The Central Bank of Egypt reaffirmed its commitment to a flexible exchange rate and tight monetary conditions to curb inflation — which is expected to follow a downward trajectory following November’s unexpected slowdown. Plans to transition to a full-fledged inflation-targeting regime and improve banking sector governance are also on the agenda.

All in all, we’re on the right track: The IMF gave authorities credit for continuing to carry out key policies to preserve macroeconomic stability, despite geopolitical tensions and their impact on Suez Canal revenues — Suez Canal transit receipts saw a 24.3% y-o-y decrease during FY 2023-24 to record USD 6.6 bn on the back of a dip in both net tonnage and number of transiting ships.

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